Green Certification: Is It Worth It?

Green Certification: Is It Worth It?

Posted on 12. Jul, 2010 by in Value of Green

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When we’re advising our Title 24 clients on their residential projects, the first concern is whether the project will meet the State of California’s requirements for efficient energy consumption – and, if it doesn’t, what measures are needed to bring the project into compliance. A home’s Title 24 compliance “score” is expressed according to the percentage by which the home exceeds the baseline efficiency standards set forth by the California Energy Commission, and these standards are tightened every 3 years.

For the most part, people are relieved just to get their home to zero. For many projects, this is challenging enough. But sometimes, additional measures could boost a home’s compliance score higher, and are much easier to take while construction is already occurring. For example, in a remodel where walls are opened, why not insulate those walls? Well… obviously it’s an additional cost that budget-conscious owners may not want to absorb at the time. But, aren’t they potentially leaving money on the table, too? What value is there in achieving a positive compliance margin?

Since Title 24 is based on a home’s projected energy performance, achieving a higher than required compliance score offers several potential benefits:

  1. Lower energy bills
  2. Credit in other rating systems like Greenpoints, and
  3. Eligibility for incentive programs like the New Solar Homes Partnership.

Calculating energy savings is straightforward matter of comparison before and after. Rebates are also known in advance; for NSHP, the rebate is based on system size and whether the home beats Title 24 by 15% or 35%.

Does Green Matter?

However, establishing a dollar value premium for having a Greenpoint rated home is a little harder. Is there a demonstrable relationship between a home’s real estate property value and its Greenpoint score? Is the Greenpoint rating itself worth anything, even if a home achieves only a modest Greenpoint score?

The question is, does a Greenpoint rated home sell for any more than the same home un-rated?

Well, Seattle green-certified homes achieved a 14% premium, according to a 2009 study by Hamilton Investments which I don’t have but which is referenced in BuildItGreen’s own literature. More on this in a moment.

A good time to establish a home’s actual value is when it is sold. Banks may extend loans based on a home’s supposed equity, but as we know, equity can vanish overnight. A good cash sale, on the other hand, establishes that at least one buyer agreed that the home was worth the price paid.

Another important factor for sellers is how long the home sits on the market. A $500K home that sells within a week is a lot better than one that only sells after 9 months; even if it sells for the original asking price, there could be additional financing costs to cover those 9 months if the seller has to put down money on a new home before the old one is sold. That’s assuming they can even get a loan.

Do the Creds Matter?

I began to wonder how much green features actually counted with homebuyers, and whether formal certifications made any difference. Even homeowners who aren’t passionate about environmental issues might be passionate about their equity, especially nowadays. So… does a green certification have an impact on a home’s market value, and what evidence is there to support this?

Despite the Seattle premium referenced above, our Bay Area realtor sources indicate that it’s still not a priority for most homebuyers. “There is a market for the green home, but it is a small percentage.  There would be some added value, but not all that much since you wouldn’t want to limit yourself to only that small pool of buyers,” remarks Rob Rogers of Zephyr Real Estate in San Francisco.

Surveys in Seattle

I asked the BuildItGreen folks, since they invented the Greenpoints system. Amy Dryden of BuildItGreen replied, “There is discussion to have GreenPoint Rated and other green building systems on the MLS. ” (The MLS or Multiple Listing Service is the national clearinghouse for up-to-date real estate listings.)

She continued: “We can reference the Seattle and Atlanta areas, where green building ratings have been integrated onto the MLS there. The results are as follows:

  • Homes with a Green rating sold 24%- 50% faster in Seattle and Atlanta
  • Sale price for Green rated homes were 4.8%- 24% higher than for non-rated homes (Seattle)
  • Resale value was 5-16% greater, compared to a 2% depreciation for non-green (Seattle)”

As of this writing, I don’t have the study that she was referencing. I’ll update this post when I can obtain that information.

So yes, apparently green homes can sell more quickly, for a higher price, and they don’t lose their value as quickly in a downturn. Amy sent me a study by McGraw Hill  which is partly a survey of what people say they would do, and partly a survey of what they are doing, particularly in terms of using green remodeling products. From their summary pages, it says that on average, homebuyers are paying a premium of $19,300 more for a green home, and 70% are more inclined to buy a green home in a down economy.

Furthermore, owners of green homes reported far higher levels of satisfaction with their homes. “Satisfaction” is an intangible quality that is not quantifiable, but then again, it’s a whole lot better than hating your home.

That’s Great for Seattle, But What About Here?

Now, does this translate into a guarantee for Bay Area homeowners that they’ll actually get more for their home eventually if they start greening it now? Umm, I’m not really sure. The McGraw Hill study was a huge survey that covered a lot of topic areas, all based on self-reported responses rather than actual real estate market activity; the sample sizes for the detailed respondents were only in the hundreds, although the initial pool was far larger.

It might be a case where individual measures are easier to quantify than some umbrella “green” designation. In a recent interview with Green Compliance Plus, solar contractor Fernando Valenzuela had talked about solar grid parity and the connection between operating costs and property value as follows: each dollar saved on annual home operating costs adds $20 to the property value. So if you tighten your home enough to save $600 a year, that theoretically should add $12,000 to the value.

Today’s “Beyond Compliance” Will Be Tomorrow’s Baseline

Back to our Title 24 clients. Another piece of reasoning to consider when going “beyond compliance” is simply this. You don’t know what you’ll be doing down the road. Maybe you’ll want to remodel again, and that remodel will have to pass a new and stricter Title 24 code. If the Title 24 has to be applied to the entire home, than all those additional measures, that had seemed superfluous at the time, might turn out to be a good thing in the second go-round.

Maybe you’ll only discover incentive programs after the fact and wish you’d taken their requirements into account sooner.

Or, maybe you’ll be putting that home on the market and discovering at some future time that a Greenpoint rated home is worth a lot more than it was when you did the work. All those efficiency measures you put in earlier could help the rating, as well as generally adding to the home’s market appeal.

Take Destiny Into Your Own Hands and Love Your Home

A lot of green market appeal is based on consumer awareness, and that of course is not entirely predictable. The McGraw Hill study indicates that homeowners are becoming more knowledgeable about green building, which would suggest that it is a priority for some. If owners of green homes continue to report higher levels of satisfaction with their homes than non-green owners, that should also eventually percolate as neighbors and friends trade information in the course of daily life.

With all the focus on sustainable building, and increased local and national incentive programs, the question is why everyone isn’t on the bandwagon already. Why aren’t homeowners rushing to improve their homes to cut their fuel bills? Well…  for one thing, a lot of people don’t like their homes and don’t feel particularly connected to them, and if they spend any money at all it’ll be for something they can see and enjoy right away, like a granite countertop. Possibly, being better-informed fosters a sense of empowerment in homeowners which in turn contributes to their feeling more satisfied with their homes.

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About the author
 Rebecca Firestone has been working in the Bay Area since 1998 as a technical writer, business content developer, architectural filing lady, marketing director, and sorcerer’s apprentice.


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2 Responses to “Green Certification: Is It Worth It?”

  1. ross levy

    12. Jul, 2010

    Thanks for the informative work Rebecca. You might try to touch base with someone at Greenkey realty in SF ( i know Jeanine Hunn) they specialize in green real estate locally. You could also talk with Jim Zack of Zack De Vito, he just sold a “green” home at the high end of the market spectrum. Another touch point might be Jeff King who is a green builder and finally, Lorax has done a lot of “green” development.

    Ross

  2. Zack Anawalt

    12. Jul, 2010

    Great article Rebecca!

    You’ve hit on some great points here. I find that well designed homes sell quickly and at a premium. A looming carbon tax and certainty that energy costs will increase in the future should be reason enough to build a energy efficient home. This should also translate into real long term savings, not to mention the intrinsic benefits of living in a creative and non-toxic environment.
    A single property case study: I’ve recently posted the following listing to my website: http://sanfrancisco.tvoa.net/address.php?property_ID=726
    This home was designed and built The Margarido Group: http://www.margaridogroup.com/ and has achieved LEED Platinum status.
    I’ll keep the readers posted on what this home trades for and at what rate per square foot over similar properties on the market.

    Best,

    Zack Anawalt, Owner
    The Value of Architecture, San Francisco
    Website: http://tvoa.net/ “San Francisco”
    Email: zack@tvoa.net

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